Q3 2025 Enovis Corp Earnings Call
Good morning. My name is Carrie and I will be your conference operator today.
At this time, I would like to welcome everyone to the invis.
Third quarter, 2025 Financial results conference call.
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After the figures remarks, there will be a question and answer session.
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I would now like to turn the call over to Kyle Rose vice president of investor relations. Please go ahead.
Conference call. I'm Kyle Rose vice president of investor relations joining me on the call today are Damian McDonald, chief executive officer and Ben Barry Chief Financial Officer. Our earnings release was issued earlier this morning and is available in the investor section of our website and novice.com
We have also posted a slide presentation in relation to today's call, which can also be found on our website, both the audio and the slide presentation of this call will be archived on the website later today.
During this call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties including those set forth in the safe harbor language, in today's earnings release and in our filings with the SEC,
Actual results might differ materially from any forward-looking statements that we make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them. Except as required, by law for further details regarding any non-gaap Financial measures referenced during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release. And in the appendix of today's slide presentation with that, let me turn it over to Damian, Damian. Hey, thanks Kyle.
Good morning everyone. And thank you for joining us today for our third quarter earnings call.
Since our last call, I've had the opportunity to meet more of our customers and team members. And I see a company with extraordinary talent and a unique portfolio spanning Orthopedic implants, bracing, Rehabilitation and enabling Technologies.
Which empowers surgeons clinicians Hospital leaders and distribution Partners to improve patients lives across the entire Orthopedic, Continuum of Care.
our solid third quarter results, reflect strong performance, broadly across the portfolio, as we focus on Commercial execution,
Operational excellence and capital, allocation.
Third, quarter Revenue grew 9%, on a reported basis and 7% organically.
On an organic basis. Recon grew 9%, prevention and Recovery, grew 4%, and we generated nearly 30 million dollars in free cash flow.
Our Recon business delivered another quarter of strong balanced growth.
In US Recon, we grew 7% led by double digit growth in extremities.
Our augmented reverse glenoid system argues to gain traction.
what's exciting here is that we're still very early in the launch cycle, and there are additional products in the pipeline to support a multi-year, Cadence of innovation, in extremities,
In hips and knees, we grew 6% in implants adjusting for the prior year sales of enabling technology. And we continue to reinforce our portfolio to compete across hospital and ASC settings.
The new products, we've launched nebula stem and author Drive impactor are performing well and surgeon feedback continues to be excellent.
Internationally, we grew 12% and this is where the Lemur integration is driving value and producing benefits.
We're executing across the cross-selling synergies. We targeted in all anatomies. These are deliberate strategic wins that position us for sustained. International growth against strong competitors.
We showcase the next generation of us at as and orcas last month.
Surgeon response to Arvest Ultra was outstanding.
It's lighter faster and that's capabilities like soft tissue balancing for knees and advanced shoulder applications.
Arvest continues to track for a broader launch in the first half of 2026.
Now, moving to PNR, we delivered 4%, organic growth with strength in bone stem revenue, cycle management, and our spine, bracing products.
Adjusted gross, margins increased 110, basis points year-over-year driven by product and Geographic, mix as well as egx driven initiatives across both our manufacturing and supply chain.
We completed the destitute of Dr. Comfort in early, October?
This is an important transaction in support of our purposeful is shaping our business. I very much want to thank the entire Dr. Comfort team for their contributions as part of the anovas family.
We're confident that as part of the promise Equity partner portfolio, Dr. Comfort has found an ideal environment to achieve its full potential.
This transaction coupled with our focused investment in Innovation. And growth has resulted in over 50% of our PNR portfolio now. Growing mid single digits or better.
On that, turn it over to Ben to walk through the financial details.
Hello everyone.
We are pleased to report third quarter. Sales of 549 million up 9% versus the prior year. On a reported basis, including 190 basis point benefit from foreign currency and 7% organic growth.
A Recon business grew 9%, organically led by double digit growth in extremities and 7% in hips and knees globally.
Prevention and Recovery Group 4%, organically reflecting, continued stability, and mixed benefits across the portfolio.
Year to date organic growth is 7%, including 10% in Recon and 5% in P&R. A clear sign of balanced momentum across the business.
Adjusted gross, margins improved 140 basis points in the quarter.
Driven by favorable mix.
Ongoing productivity and Manufacturing and supply chain and slightly offset by tariff impacts.
Adjusted ebit da margin was 17.3%.
Down 60 basis points year-over-year, reflecting planned R&D investments, phasing of expenses, and tariffs.
Year to date we've expanded gross margins over 170 basis points and increased adjusted ebit margins by 40 basis points.
Third quarter effective, tax rate was 21.8%. Interest expense was 9 million for the quarter down from 11 million last year.
As a result adjusted earnings per share was 75 cents up. 3% versus prior year.
Year to date adjusted EPS is up 27% driven by margin expansion and reduced interest expenses.
Additionally, we recorded a non-cash. Technical impairment of Goodwill of 548 million in the quarter due to a sustained decline in our share price and market capitalization. This impairment does not have any impact on anova's liquidity. Cash flows debt. Covenants nor does it have any impact on future operations?
We are still very confident and optimistic in the long range plans. We've communicated and believe our execution against yearly Financial commitments. Since the spin has demonstrated a strong track record of operational performance,
In early October, we announced the sale of our diabetic foot foot care business, Dr. Comfort to promise, Equity partners for up to $60 million, including 45 million in upfront cash, which will be used to, to reduce debt.
The transaction sharpens. Our focus on core P&R markets and aligns with our strategy of concentrating on higher growth, higher margin opportunities.
Dr. Comfort represented roughly 5% of P&R sales year to date.
As a result of this sale for the fourth quarter, the impact, to our Revenue Outlook is expected to be 15 million and we plan to absorb the modest impact on margins and operating cash flow.
Returning to guidance. We are updating our full year 2025 Outlook.
Due to our positive Q3 performance, and the divestiture of Dr. Comfort, we are adjusting Revenue. Guidance by 5 million to 2.24 to 2.27 billion, with no change to our organic growth guidance.
We are also raising our profit and earnings Outlook. We now expect adjusted, EBA in the range of 395 to 405 million. This is a 3 million increase to the range and is inclusive of a more favorable tariff Outlook. Solid, Q3 results and the negative impacts from the divestiture.
As we have previously communicated, the Tariff situation remains very fluid.
We paid 4 million of tariffs in Q3 uh still mostly related to PNR.
We are beginning to feel the impacts in the p&l, as the new costs have worked their way through inventory. However, we continue to execute against our mitigation action plans in effort to offset this inflation.
No adjustments have been made to our outlook for depreciation interest tax rate or share count.
We are also raising our adjusted EPS guidance by 5 cents to $3.10 to $3.25.
Cash flow for the year, which we will prioritize towards debt reduction and lower leverage levels as we exit 2025.
To summarize through 9 months, our results highlight the resilience of our platform, the strength of our Diversified portfolio and the progress. We're making towards sustainable profitable Capital efficient growth.
The underlying fundamentals of the business are improving.
And we will continue to manage the business responsibly through this Dynamic environment as we maintain progress towards our strategic goals and financial commitments.
Kyle.
Thanks been in an effort to accommodate everyone in the Q&A session and keep things to a reasonable time. We ask that analysts keep their questions to 1 question and 1 follow-up. You're welcome to rejoin the queue and we'll fit you in. If we have time with that operator we'd like not like to. Now open it up for questions.
Thank you. And as a reminder, if you would like to ask a question, please press star.
Keypad, your first question will come from zic chopper with Well Fargo.
Hey, good morning, and thank you for taking the questions. Congrats on a nice quarter, uh, 2 for me here, maybe starting off first, you know, 1 of your larger competitors. Yesterday called out a modest slowdown in the US revision market. For both hips and knees. I'm just curious if you're seeing that Dynamic layout, um, as well.
So um morning Vic, how are you? Thanks for joining.
Um, look so far, give 4 procedures, seems healthy and stable. Uh, look has historically um, markets have been resilient and look there's no secret. There are lots of factors affecting sentiment at the moment. Entitlement Cuts government policy changes in government, uh, inflationary concerns.
So all of these could could weigh on volume but uh right now we're seeing you know that healthy and stable volumes.
Okay, that's helpful. Um, and then, you know, given where we are in early November, I'm just wondering how you're thinking about the potential headwinds and Tailwinds um, in 2026.
And if High single digit, which we can't grow is still on the table for next year. Thank you.
Yeah, I mean Vic, we're we're still going to see how the the year plays out with regards to um thinking how 2026 momentum is is going to take, take us. Um, so overall, I think you know, we, we still see that as a potential for for this business, uh, but we're not guiding on 2026 right now.
Your next question will come from Young Lee with Jeffrey.
All right, thanks for taking our questions. Um, I guess to begin. Um, wanted to hear a little bit more Damian, you know, now that you've been standing in the seat for, um, a while longer now, um, wanted to hear your perspective on, um,
Portfolio management and transformation. Um, you know, obviously the the deal you've done with um Dr. Comfort Comfort is a um, you know, helping to streamline the portfolio. Um, should we expect, uh, more to happen? Um, on that front going forward.
Hey morning young. Uh yeah, we're very focused on 3 things. This this commercial execution and again I think you saw that read through in the quarter the the operational excellence and and we've talked about egx a lot in the past but we're really doubling down on that. And and the last thing is this financial discipline and we're taking a look across the whole portfolio.
um, not only things like doctor Comfort, but SKU rationalization and you know how we think about cash generation,
So I would say, you know, everything everything's on the table. Uh but being very focused on those 3. Things is, is important for us in the near term.
Okay, great, very helpful. Um, can you, um, maybe, um, help level set us a little bit, um, the ours Ultra full launch. Um, how should we expect the pace of that, um, following the, uh, the full launch next year and maybe, um, a few years down the line,
At both of those conferences.
Uh our model is being examined like how we think about our go to market and offering lots of flexibility in terms of the financial uh model for customers to purchase lease or uh commit to implants. So we're working through that as we launch this in uh
q1 Q2 of 2026 as we go to our broader expansion.
I agree. Thank you.
Your next question will come from Robbie Marcus with JP Morgan?
Hi, this is Alan on for Robbie, I guess, like first question is, you know, as you've highlighted the broader Market as our main healthy so far and fourth quarter. So how should we think about the drivers of upside, to your current guide and where you see that kind of positioning you for 2026?
Morning, Allan, how are you? Thanks for taking the call with us. Uh, so I think our upside are really around this commercial execution. Uh, in terms of the growth levers, uh, you know what? Now, as I said, we're very focused on this uh, with the commercial organizations, we just went through the uh, quarterly business reviews with the business units in the US. Uh, we're very focused on things like, uh, account acquisition account penetration. We're very focused on on the way.
um, we think about prioritizing our Innovation, we're very focused on
Customer segments, in customer targeting. So in terms of the the growth line
Uh, these are the things we're doubling down on, uh, in terms of margin and and reading through in the p&l looking at gross margins setting up War rooms on that, uh, for the various business units, uh, working capital kaizens, uh, focusing on on cash flow with, you know, accounts receivable, um, looking at the skus and the portfolio and and rationalizing inventory. Uh, they're all things that are important for us. A lot of these things don't happen on a dime. But we're, uh, we're of the belief that all of this reads through in 2026
Got it and then just a quick follow-up. It was good to see you know continued progress and free cash flow this quarter. So how are you thinking about?
Setting that up for 2026 what your priorities are between, you know, debt repayment and other methods of redeploying capital.
Yeah. Thanks Alan. Our, our clear focus is on uh, Debt, Pay down and and reducing our leverage levels. If you look at our latest, you know, trailing 12 months, we're we're now down in the low 3S from a leverage ratio. We're making progress on cash flow. And as I've communicated in the past, we see some significant step Downs in terms of integration costs. And uh, your
European medical device regulation costs in 2026. So we expect our momentum and free cash flow generation to continue as we step into 2026.
Your next question will come from Vijay Kumar with Evercore ISI.
Hi Damian. Uh good morning and thank you for taking my question. Uh my my first 1 is on on us Recon and harvest uh specifically.
Uh, you mentioned part of feedback, uh, to the new new uh, launch. I'm wondering, um, I I know you called up the 3 million, uh, Capital headwinds, uh, were there any implant, um, sales, uh, utilization based, um, kind of agreements. Meaning could could this lack of or right now have had, uh, an impact on your implant sales right now. And, and, um, you know, when you think about Harvest coming back next year, uh, you know should implant, uh, USA which has been trending around mid singles. Uh, should that axle rate?
Um, so first, uh, good morning, hi VJ. Uh, listen on the, uh, implant impact for the delay. No, we haven't seen any impact on implant sales because of the the delay. And uh, going forward, we're looking forward to engaging with people.
I mean, we still believe that us hip and knee is a big growth driver for us. Uh, our funnels are are solid uh in terms of customer conversion. And we continue to invest in Innovation, uh, for this portfolio. Not only in enabling Tech but in implants, uh, as well. So we we expect this business to continue to be a growth driver for us.
Understood I maybe been 1 1 on the, your Q4 guidance assumptions. I know you have a days. Headwinds, could you just remind us on, uh, what the days headwinds to uh, growth is in in a Q4. And I'm looking at your uh, uh, EPS implied. You know, at the high end EPS is a flattish Q on Q. Historically, you've had a pretty big, uh, step up, uh, for Q4, uh, wire, margins, flat. Oh, your tariff assumptions changing here for Q4 or is this the Devastator impact, any any color would be helpful.
It's a combination of those things Vijay. I mean, I'd say from a day perspective, as we laid out at the beginning of the year, we had extra days in q1, uh, those all come out in in Q4. Uh, so it's going to be a, you know, 4 plus percent headwind to growth in in the quarter. Uh, as, as we look at Q4, um, you know, you've got the we've paid 10 million year to date on tariffs. Uh, that's starting to re read through. We had about a 50 basis, uh, Point impact to ebata margins in Q3 as a result.
Result of tariffs. Uh, so we're mitigating some but some of it starting to read through, that will continue to read through, uh, in in Q4. Um, and, uh, there's a modest impact due to the diver as well. So all those things factor into um, how how you thinking about the the ebit dog guidance for Q4.
Thank you.
Your next question will come from Caitlyn Roberts with Conor cord genuity
Hey guys, this is Michaela on for Caitlin, congrats on a great quarter and thanks for taking the question. Um you noted softer volumes and foot and ankle on the 2 CE on the Q2 call but um you said you expected some back half acceleration. Can you talk more about how that trended in the third quarter?
Yeah, good morning, Mata. Yeah. So actually, we did see a bit of a rebound in in that space which is great. Uh, meeting with the
Team at the aofas conference in Savannah was, you know, a pretty exciting time for us, talking about Mis surgery. Uh, and we talked a lot about how, you know, there's a very solid order book and in terms of the way that markets rebounding. So, um, we're continuing to see this team execute. Uh, we've got a lot of, uh, investment in Innovation and, uh, customer engagement with them and, uh, we're looking forward to them being a growth driver for us.
Great, thanks. Um, and just 1 more from us, maybe can you talk about your thoughts on the J&J Dias spin-off? And if that could create some long-term opportunities for you guys?
Yeah, it's not my place to comment on that. I think J&J make portfolio decisions all the time that are interesting and um we look forward to competing with whoever owns it.
Got it, thanks.
Your next question will come from Mike Matson with Nita.
Yeah, thanks. Um, so on the the doctor comfort deveste
Is it possible to quantify the margin or growth accretion from that? I mean, is it even material that we would see it in the overall, uh, company, you know, margins and growth rate.
Hey, hey, Mike, how you doing? I I think it'll give us a little bit of, uh, a Tailwind as we think about both growth and and margin. Um, so we we laid out on on the slides that we produced today, in terms of the contribution, um, of what we've seen to that business on Revenue year to date. Uh, it's lower than the fleet average, uh, company margins. So um, so we'll have a little bit of tailwind and as I think we've discussed before it's a business that's been flat. The declining uh in the past this year, it's been re-stabilize.
Agree. It's a creative to both growth and margins for us, uh, not materially, but but will give us a little bit of help as we focus on shaping that portfolio.
Capital was, was it like instrument sets to distributors or
Harvest or something like that. That, that you had a year ago, that didn't recur essentially is, is that what happened?
Yeah, I think we laid this out a little bit last quarter. Is that we've been selling, uh, Arvest last year as we were seeding. The market, uh, especially in teaching institutions, and things like that. So, we were selling 2 to 3 million a quarter of our, this last year, as we were starting to build, um, that portfolio out and and given the delays to the launch of the new platform. This year, all that's been put on pause. So for the this, this quarter and even next quarter, we'll have some headwinds due to, uh, Capital sales that we saw in 2024.
Okay. But the, the implants in the US I think it says that was up mid mid single digits. Correct.
The influence part of the business. Okay. Got it. Thanks. That's right. You got it.
Your next question will come from Russell young with William Blair.
Uh, hey everyone, thanks for taking the question. Uh, so I wanted to focus first on the strength. Uh, and Recon internationally could you maybe talk about the Dynamics? At play here with a cross-selling and maybe more specifics, or anecdotal information on what you're seeing in terms of acceptance or feedback from respective product launches
Well I think there's a there's a few things and thanks for the question. Uh we talked specifically about cross-selling. I think we're seeing that read through and things like the Prima and SMR shoulder uh, portfolio. Now you know really gives us a chance to talk about how to grow portfolios. Um so in terms of product Focus we're seeing you know good good growth. Uh also in terms of geographic you know jurisdictional growth uh I think the team is doing a better job at in country execution and I think both of those are reading through
Got it. Thanks. And then maybe, uh, I I'm not asking for formal guidance on 26, but maybe how should we think about General impact of new product launches like nebula and orthod drive going into Q4 and then maybe it's momentum into 26 and what exactly are you most excited about?
Yeah. And, you know, we, we believe that Innovation is critical for our ability to grow above market and Recon like we've demonstrated now for for quite a long period. So that will continue to weigh into how we think about this business from a growth going forward. I think I was asked earlier about the the momentum there in terms of of growth rates of Recon. We still very much believe, Recon will be a growth driver for us and above Market. Uh so you know, High single digit plus uh, for that. Business is our expectation, uh, for sure.
So, so overall, I'd say all these new product. Launches are contributors to that and building momentum as as we've laid out during the course of this year, they're beginning to scale. Uh, so they should give us some help as we think about that above, market growth in 2026,
Your next question will.
With UBS Financial.
Hey, good morning everyone. Thanks so much for for taking the question. Um, just a, a quick question on um, the new product launches. So, just curious about as we think about nebula Harvest launching and first half. Next year, how do you think about the contribution of of price versus volume? That's the first question. And then I just had 1 follow up on, on the ramp of those products.
Yeah, I mentioned all of the new product launches. We anticipate they will help us mitigate the market headwinds and price pressures. So, um, we're making good progress in terms of the way we are able to execute new product launches, and you see that read-through. We're making good progress on our account acquisition, and all of these things, we believe, help mitigate the secular headwinds in price.
Gotcha. Okay, thank you. And then I was curious if you guys can talk about, um, the, the split between hips and knees. So, um, you know, was there a major difference in in growth, or what you're seeing in market dynamics, between the, the 2? And that's it for me, thanks so much.
Product, launches, a revisions for needs have been, you know, performing well for us as well. Um, we expect our us, what will help, um, to accelerate this category as well as we think about into the future. So overall, we don't break it out specifically, but I can tell you both both sides of of the equation, there are growing for us.
Again, ladies and gentlemen, for any questions or comments, please press star. Then the number 1 on your telephone keypad,
Your next question will come from day 1 with beard.
Hey guys. Good morning. Thanks for taking the questions here. Um, I guess I'll follow up a little bit. Maybe on Danielle's first question kind of price, mix related. Um, I know back, you know, a few years ago, when, when inflation was running a little bit higher, you got some Price benefits in PNR, can you just talk about? If you're you're able to kind of pass through similar pricing, you know maybe giving some of the tariffs that you're absorbing and that's question 1 and then to follow up on that maybe within extremities obviously shoulder it sounds like it's a little bit of that 13%. Um and arg's been a good contributor to that. Can you also talk there about? I think you've got a price Tailwind with that product and then maybe how much of that, you know, uh a recent strength is due to, you know, new new competitive converts versus just upgrading existing shoulder users.
Hey, Dan. Thanks for the question. Uh, I'm I'm PNR we we've laid out clearly that part of our mitigation efforts, uh, against the inflation coming in from tariffs is is to leverage price. Um, we have introduced some increases there, uh, to offset some of the impact. Uh, we're being a little cautious, just given the the market dynamics that are currently at play there. So, uh, but it will continue to be 1 of the, the tools in our toolkit, as we think about, trying to manage through this inflation, that's coming into the system. Um, as we go forward on, on the, the Recon side particularly in shoulder, I would say that argues to, uh, be a weapon for us as we think about converting customers. Uh, and it allows us to drive deeper penetration in current accounts. And we're seeing both happen right now and we think there's still a nice runway in front of ARG to continue to drive momentum in our, our extremely
Platform, uh, as we go into next year and Beyond as we think about pricing, you know, like the like price pricing hasn't. We haven't seen a whole lot of changes happening there. If you think about the mix elements asc's, uh, we continue to drive penetration and our portfolio into asc's hips, knee shoulders, all increasing year-over-year in terms of n number of implants going through, uh, that site of care. Uh, and and
In that case, we have some price pressure from a mixed standpoint. It's being offset by some of the premium products uh that we are launching like ARG and and like revisions and and needs that continue to perform well for us offset, that a little bit. And then we would expect as we start to drive Harvest into the market that can be a bit of an offset to some of the pricing declines as well. But, you know, as for us, we're a volume game in terms of growing above Market, uh, that. Plus, some of the mix of our portfolio with extremities is driving, you know, our ability to continue to grow gross, margins as well.
Thanks. And then my follow.
Obviously, you talked about some of the integration related costs coming down next year, same thing with the EU MDR um, expenses can you just remind us what your long-term Target is in terms of free cash flow conversion. I think it was something around 70 to 80% 1. Is there a timeline on that and then 2 any thoughts for where you could maybe shake out, you know for 2026 specifically. Thanks guys.
Yeah, yeah, I I think from our standpoint, it can it continues to be a key focal point for us to get up to cash flow curve. We see line of sight to 70 to 80% free cash flow conversion against adjusted net income. Uh, you know, we'll continue to make progress towards that goal as we step into next year. But we're not guiding for for next year at this point in time.
There are no further questions at this time, I'd like to turn the call back over to Damian for any closing remarks.
Thanks, Carrie, for the last call. I outlined three near-term priorities: commercial execution, operational excellence, and financial discipline.
Innovative solutions to clinicians and improve patients lives through Mobility.
Thanks for joining us this morning and we look forward to sharing our fourth quarter and fully results with you in February.
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